"Rigid Labor Practices and Low Incentives Drive Foreign Companies Away from Korea... New Government Policies Needed to Attract Them"

Industrial Union Forum 'Measures and Suggestions for Expanding Foreign Investment'
"Rigid Labor Market and Low Tax Competitiveness... Reluctance to Invest"
Regulatory Relief Crucial to Attract Additional Foreign Investment

[Asia Economy Reporter Choi Dae-yeol] While South Korea has competitive advantages in running businesses, experts point out that the labor market's rigidity and the lack of efficient investment incentives limit the expansion of foreign companies' investments. With the international community's decoupling trend intensifying due to Russia's invasion, foreign companies are increasingly seeking new investment destinations. Experts advise that the new government should adopt more proactive policy measures to create conditions that attract foreign investment.

According to an analysis by the Korea Industrial Federation Forum on data from the United Nations Conference on Trade and Development on the 27th, South Korea's ratio of foreign direct investment (FDI) inflows to outflows over five years from 2016 was only 0.4 (inflows of $61 billion vs. outflows of $169.9 billion). This was the second-lowest level after Japan, which had a ratio of 0.1. It was even lower than developing countries such as Vietnam (25.4), Indonesia (15.3), and India (4.6), as well as major economies like the G2 United States (2.3), China (0.9), and G7 countries Germany (0.5) and France (0.5). This indicates a continued trend of foreign companies withdrawing from Korea.

Jung Manki, chairman of the Industrial Federation Forum, said at an event on expanding foreign investment, "This reflects that our national competitiveness regarding multinational corporations' locations is weak due to our unique regulatory proliferation."

He added, "As a backlash to excessive protection of regular workers, companies have increased the use of non-regular workers, but unlike other countries, restrictions such as a maximum two-year usage limit, prohibition of dispatched labor in direct manufacturing processes, and illegal dispatch rulings on in-house subcontracting make it difficult to utilize diverse employment types according to market conditions. Although the administration has legally recognized issues like ordinary wages and in-house subcontracting, courts have denied them, causing legal instability due to differing interpretations of the same laws."

The National Metalworkers' Union, Hyundai Motor, Kia Motors, and Korea GM, the three completed car manufacturers, held a press conference in front of the National Assembly in Yeouido, Seoul, last March, urging legislation for retirement age extension linked to the National Pension Service. Photo by Moon Honam munonam@

Foreign companies operating domestically also criticized the challenging business environment in Korea. James Kim, chairman of the American Chamber of Commerce in Korea, said, "For Korea to emerge as an Asian business hub, regulations unique to Korea in digital trade, cloud computing, pharmaceuticals and medical devices, labor law, fair trade, and the automotive industry must be aligned with global standards." He emphasized, "It is absolutely necessary to improve the business environment by curbing the minimum wage increase rate to reduce domestic operating costs and easing regulations related to executives such as CEOs." Kim prioritized reforming taxation, labor flexibility, and policy stability.

Dirk Lukat, chairman of the European Chamber of Commerce in Korea, stated, "Labor market reform is an important part of supporting corporate competitiveness. Regarding the current 52-hour workweek system, greater flexibility is needed depending on situations such as production, research sites, and peak seasons." He added, "Although restructuring requires urgent managerial reasons as a condition, it is necessary to allow broader freedom for dismissals to stabilize management."

Kaher Kazem, president of Korea GM, said in a discussion, "For foreign-invested manufacturing companies that export most of their products, stable labor-management relations, product cost-effectiveness, and certainty and stability of supply to export markets are key factors in deciding investment in Korea." He noted, "Korea GM experiences more frequent labor-management conflicts and shorter negotiation cycles compared to competing plants in other countries."

He emphasized, "Uncertain labor policies and the dual punishment system that penalizes company executives create instability, making it difficult to respond quickly to market volatility and maintain cost competitiveness. Foreign-invested companies need to prove to shareholders that investing in Korea is competitive in terms of profitability, and for this, various economic and industrial policies by the Korean government supporting business operations are very important."

The financial district of the City of London, UK. Over the past five years, the UK has attracted 4.6 times more foreign direct investment inflows than outflows, ranking it among the highest among major developed countries.

There were also calls to view the heightened trade barriers caused by the US-China conflict and Russia's invasion as an opportunity for Korea. This is because advanced foreign companies are increasingly leaving China and emerging developing countries to seek new investment regions. Jang Yoon-jong, invited research fellow at the Korea Development Institute, said, "Government cash support has been limited to hardware-focused uses, making it impossible to support innovation activities such as research and development by foreign-invested companies. It is desirable to significantly strengthen this."

Jung Hyung-gon, senior research fellow at the Korea Institute for International Economic Policy, pointed out, "If the current cash support system is refined by dividing it into loan-type and fund-type and operated delicately with differentiated support based on the economic ripple effects of foreign investment, it will ensure that it is not a means to induce preferential treatment or tax evasion while providing significant incentives to companies."

Professor Jung In-kyo of Inha University's Department of International Trade said, "If the Yoon Seok-yeol government adjusts carbon neutrality and energy policies to fit industrial realities and relaxes excessive corporate regulations in the labor sector, multinational corporations will secure political stability and give greater weight to Korea's excellent domestic investment environment when making investment decisions." Chairman Jung Manki said, "While not better than foreign countries, it is necessary to at least create an equal business environment," and added, "We look forward to the Yoon Seok-yeol government's policy efforts for market economy and regulatory reform."

This content was produced with the assistance of AI translation services.